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April 15 — One of the key features of the Regional Greenhouse Gas Initiative is that most of the proceeds from its carbon auctions are reinvested in energy efficiency and renewable energy programs.

RGGI and its supporters have long argued that this feature has allowed states to reduce carbon emissions with both an emissions cap and programs funded by the auction proceeds. They have lauded the programs for stimulating economic development and building a so-called clean energy economy.

RGGI supporters are now concerned, however, that the transfer of RGGI proceeds to other programs in New York state and a proposal to redirect RGGI funds in Connecticut is weakening that core principle of the cap-and-trade program. They describe the use of RGGI proceeds for other programs as a “raid” on RGGI funds.

RGGI auctions have raised a total of $2.3 billion for the nine states—New York, Delaware, Maryland, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine.

State officials in Rhode Island, Maine, New Hampshire, Vermont and Delaware told Bloomberg BNA that there has been no diversion of RGGI funds in their states. Representatives in Maryland could not be reached for comment.

RGGI MOU

The RGGI memorandum of understanding (MOU) that guides state participation in the program provides discretion to individual states on how to use RGGI proceeds, as long as at least 25 percent are used for energy efficiency measures, renewable or clean energy technologies, carbon emissions abatement technologies, or direct ratepayer assistance. It also allows states to use the funds to administer the program.

Jordan Stutt, a policy analyst for the Boston-based Acadia Center, said states have used far more than 25 percent of the proceeds for these programs and there has been no movement to raise the 25 percent guideline because states like the flexibility and have spent most of the money on clean energy programs.

“That's a strength of how the RGGI model is set up,” he told Bloomberg BNA.

Most of the proceeds from RGGI auctions have gone to energy efficiency programs, according to a 2015 report. The report, which covers the period from 2008–2013, said 57 percent of proceeds went to energy efficiency programs, 15 percent were used for greenhouse gas abatement, and 13 percent were used for clean and renewable energy programs.

Nine percent of proceeds went to direct bill assistance and 6 percent were used by RGGI and the states for administration of the program (76 ECR, 4/21/15).

New York

The 2016–2017 budget Gov. Andrew M. Cuomo (D)approved transfers $68 million from the fund administered by the New York State Energy Development Authority (NYSERDA) for RGGI auction proceeds to other programs, but whether that transfer actually constitutes a “raid” or not is subject to interpretation.

The budget would transfer $30 million to the state Urban Development Corporation to provide assistance to communities that lose property tax revenues from the closure of a power plant (S. 6408), $15 million to the State University of New York to create a Clean Energy Workforce Opportunity Program and $23 million for a variety of tax credits for solar energy, green buildings and other clean energy programs (S. 6406).

New York received $167.7 million in proceeds from RGGI auctions in 2015.

“The governor is committed to making New York coal-free by 2020 and meeting 50 percent of our electricity needs with renewables like solar, wind and hydro by 2030,” Morris Peters, a spokesman for the state Division of the Budget, told Bloomberg BNA in an e-mail.

“To achieve these goals, we must retire aging and obsolete power plants, support clean technologies, and educate the next generation of clean energy workers,” he said. “Clearly, these objectives are consistent with the RGGI program’s goal of promoting a clean energy future.”

The state's leading environmental groups, however, opposed the use of $30 million in RGGI funds for communities with closed power plants.

“We strongly oppose this raid of RGGI proceeds and urge the adoption of a final budget that avoids the diversion of RGGI funds from the clean energy and carbon abatement measures they are intended to advance,” the groups said in a letter to the governor and state legislative leaders.

Transfers Opposed

Travis Proulx, a spokesman for Environmental Advocates of New York, told Bloomberg BNA that the group opposes all three transfers from NYSERDA's RGGI fund.

Across the border from New York, Massachusetts is explicitly permitted to use RGGI proceeds to offset property tax revenues lost as a result of a plant closing, under the Green Community Act, the statute implementing the RGGI program.

New York has transferred money from the NYSERDA fund twice in the past and each time it raised concerns from environmental groups. It used $90 million to close a budget deficit in 2009 and $41 million in 2015 for the Environmental Protection Fund and other environmental programs.

New York is unique because it is the only RGGI state that has implemented the RGGI program through regulations, rather than statute. This lack of explicit statutory authority opened New York up to a lawsuit in 2011 and environmentalists fear that additional budget transfers could expose the state to litigation again.

The conservative leaning Competitive Enterprise Institute sued the state in 2011, alleging that New York was effectively imposing an energy tax through the RGGI rules without gaining legislative approval. An appeals court rejected the lawsuit on grounds that the claims were time-barred or moot and the state's highest court declined to hear the case (Thrun v. Cuomo, N.Y., No. 2014-138, motion denied 4/3/14) (65 ECR, 4/4/14).

Connecticut

Legislators in Connecticut are considering a proposal that would divert $20 million in RGGI auction proceeds from energy efficiency and renewables into the state general fund. The proposal is part of an effort by state lawmakers to reduce a projected $933 million budget deficit for FY 2017.

Connecticut received $29.9 million in RGGI auction proceeds in 2015, or two-thirds of the total.

A measure from the Joint Committee on Finance (H. 5046) reported April 7 would sweep the $20 million, but the issue is still under debate in the legislature. Jeffrey Berger (D), chairman of the House Finance Committee, told the Joint Committee that it is his understanding that the diversion of $20 million from the RGGI auction proceeds still would allow the state to meet its obligation under the RGGI memorandum of understanding.

The budget Gov. Dannel P. Malloy (D) proposed doesn't include a sweep of RGGI funds, nor does a revised budget released April 12. The legislature is scheduled to adjourn May 4 and is required to enact a budget before concluding its 2016 session.

The RGGI sweep is opposed by the Connecticut Department of Energy and Environmental Protection (DEEP), whose deputy commissioner, Katie Dykes, is the current chairwoman of RGGI.

Legality Questioned

Sweeping the RGGI funds would violate Connecticut law, which requires that proceeds be used for energy conservation, load management and renewable energy programs, according to a DEEP fact sheet provided to Bloomberg BNA. It said the sweep also would violate the terms of the RGGI MOU.

The New England grid operator, ISO-NE, and the Federal Energy Regulatory Commission recently have begun to factor Connecticut’s investment in efficiency and renewables into their planning for how much power generation is needed to avoid blackouts and power outages. If legislators proceed with their plans to funnel $20 million of the RGGI proceeds away from those programs and into the state General Fund, then “our region would face inadequate power supply, threatening reliability and causing the ISO-NE to seek costly alternative sources of power generation,” the fact sheet said.

It said sweeping the funds would amount to “an energy tax” that would increase electricity costs for ratepayers. DEEP also said it could permanently damage the state’s efficiency and renewable programs by creating regulatory uncertainty.

The budget proposal would divert $15 million from energy efficiency programs and $5 million from the Connecticut Green Bank, which provides funding for renewable energy, according to the nonprofit Acadia Center.

“We are deeply troubled by this shortsighted proposal,” Jamie Howland, director the Center's Climate and Energy Analysis Center, said in a statement. “The raid would disadvantage consumers, increase pollution, undermine the state's leadership on climate and further erode confidence in the predictability of policy making.”

Differences by State

Stutt said the current situation in New York is different from the one in Connecticut because New York will be using the money for clean energy programs. He told Bloomberg BNA that the Acadia Center opposes the New York transfers, but at least they're being used to achieve strategic environmental goals.

Jennifer Smokelin, an attorney with Reed Smith LLP whose clients include a number of energy companies, said the debate over using RGGI funds is “mostly a local issue” because each state has its own rules for spending the proceeds from RGGI auctions.

“I think it is important to remember that the redirection of funds doesn’t hurt the stringency of the cap at all—compliance entities still have to comply just as before,” she told Bloomberg BNA in an e-mail.

“I think on some level it draws attention to the positive effects on state coffers a cap and trade system can have,” she said. “Controversy over where money should go is a better problem to have than not having the money at all.”

Other RGGI States

In Massachusetts, the Green Community Act sets forth exactly how the commonwealth may use RGGI proceeds. They are primarily used for energy efficiency and other programs under the Mass Save program, grants for green communities programs, rebates for electric vehicles, energy efficiency, conservation and demand-response initiatives, according to Katie Gronendyke, a spokeswoman for the Massachusetts Department of Energy Resources.

Massachusetts received $74.2 million in RGGI auction proceeds last year.

Very Specific Uses

Phillip J. Cherry, director of the Division of Energy and Climate and the Delaware Department of Natural Resources and Environmental Control, said the Delaware statute is very specific on how RGGI funds may be used. Sixty-five percent must by allocated to the state's Sustainable Energy Utility program, 15 percent for low-income consumers, 10 percent for greenhouse gas reduction projects, and up to 10 percent for administration of the program and other expenses. Delaware received $20.8 million in RGGI proceeds in 2015.

There are debates underway in Maine and Hampshire about how best to spend RGGI funds, but not about diverting the funds from their intended purpose.

New Hampshire used $3.1 million of its RGGI proceeds to balance its budget in its 2010–2011 fiscal year, Laura Richardson, executive director of the Jordan Institute, an energy efficiency advocacy organization in Concord, N.H., told Bloomberg BNA.

“It wasn’t that much,” she said. “But it set a precedent for other funds to be raided.”

She said the state’s Renewable Energy Fund has been continuously raided and used as general funds.

RGGI Critic

The debate over using RGGI funds also has emboldened critics of cap-and-trade programs.

“Cap-and-trade programs and carbon taxes are ripe for this sort of abuse,” Chris Warren, a spokesman for the Institute for Energy Research, a free-market think tank that opposes the RGGI program, told Bloomberg BNA in an e-mail. “It’s an inherent problem that isn’t unique to RGGI.”

“Politicians get their foot in the door by selling us solutions to climate change and making lofty promises about how the revenue will be spent,” he said. “However, at the end of the day, these programs aren’t about the climate or the environment. They’re about opening up another stream of revenue for politicians to spend how they please.”

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